Early investor feedback has “skewed positive” after enhanced geothermal developer Fervo Energy went public last month, but the company’s pipeline of around 42 GW is impacted by transmission constraints in the West, said a Monday research note from Jefferies.
Those constraints “could slow [Fervo’s] anticipated roll-out as most sites are in rural areas with limited infrastructure,” Jefferies equity analyst Julien Dumoulin-Smith said in the note. “Management has highlighted this as a risk factor for full 384MW, citing behind-the-meter as a potential solution.”
Market intelligence and research platform MLQ.ai made a similar assessment in a May 5 analysis of Fervo’s initial public offering.
“Fervo depends on third-party transmission infrastructure for all current revenue and contracted [power purchase agreements],” the analysis said. “For Cape Station Phase II specifically, the company holds approximately 290 MW of interconnection and transmission rights, which is insufficient to support the full 384 MW of combined contracted capacity under expanded SCE and Clean Power Alliance PPAs. If additional transmission capacity cannot be secured, revenues will be reduced or contracts may be modified.”
However, Dumoulin-Smith said Fervo’s management “appears more bullish than we initially considered” when it comes to connecting their generation directly to customers behind the meter. In May, Sarah Jewett, Fervo’s senior vice president of strategy, told TechCrunch that the company is “seeing an increasing amount of behind the meter commercial interest.”
In March, Fervo left comments on a California Public Utilities Commission concept paper, Working Concepts in Transmission Financing and Ownership, noting that the CPUC has committed to initiating the procurement of clean firm resources like geothermal, but “needs to take urgent action to unlock delivery through new transmission.”
Fervo’s 42 GW pipeline spans ten projects across Nevada, Utah and Idaho, and the company has identified additional prospective lease areas in those three states as well as California, New Mexico and Washington.
Overall, Dumoulin-Smith said investors are “engaged and appear receptive to the story, with questions centering on how to build conviction on first-of-a-kind [enhanced geothermal]. Growth is compelling, but the next few months remain critical as investor scrutiny will be at its peak for both execution and potential setbacks ahead of Phase I [commercial operations date]” at Fervo’s landmark project, the 500-MW Cape Station in Utah.
Cape Station is set to begin commercial operations late this year, initially delivering 100 MW of power. The project experienced a well blowout on May 25, according to reporting from Axios, but Fervo said there were no injuries or environmental damage and that the incident wouldn’t impact the project’s timeline.
However, Dumoulin-Smith said the incident “highlighted the degree of [investor’s] nerves, with client inbounds centered on the impact to the project, timeline, and cost, despite limited details on what had actually happened until Friday … the number of inbounds we received underscores how critical near-term execution on Phase I will be to shares.”
